an unsolicited order to invest in Indian Wells '84. 3(g) Stmt.
¶ 7. Mrs. Farr requested Gerber to invest $100,000 in Indian
Wells '84. Gerber attempted to persuade her that she should not
invest that large a sum in Indian Wells '84 and tried to
convince her that she should invest no more than $50,000.
Gerber Dep. at 145-148. Mrs. Farr agreed to purchase 150 units
of Indian Wells '84 for $75,000, which she did on October 19,
1984. 3(g) Stmt. ¶ 9. Prior to investing in Indian Wells '84,
Mrs. Farr received the prospectus for Indian Wells '84. 3(g)
Stmt. ¶ 8.
Mrs. Farr died in May 1985, and Richard Farr was named the
personal representative of her estate. 3(g) Stmt. ¶ 12; Farr
Dep. at 17. Correspondence about the Indian Wells investments
was forwarded to Farr at his home in Alabama, where it was
received and read by Farr. Farr dep. at 67, 70, 82. Indian
Wells '83 and '84 sent to its limited partners quarterly and
annual reports, which Farr began receiving no later than May 8,
1986. Farr dep. 69-70, 78-80. These reports disclosed the
amount of quarterly distribution, if any. See McDonough Affid.
Exs. F, G, H, I, J, K. For Indian Wells '83 the distribution
per $500 unit for the first quarter of 1986 was $7.76; for the
second quarter there was no distribution; for the third quarter
there was a net distribution of $1.20. Exs. F, G, H. In annual
reports dated May 19, 1987, Exs. J and K, Indian Wells '83 and
'84 listed the price at which they would buy back units from
the limited partners, as provided in the prospectus. The
buy-back (or "presentment") price, established by an
independent appraiser, was $34.36 per $500.00 unit for Indian
Wells '83, and $314.92 per $500 unit for Indian Wells '84. Id.
The annual report also disclosed that total distributions
through the end of 1986 for Indian Wells '83 had been $150.00,
but distributions for 1986 had been only $12.34 — a 2.46%
annual distribution rate for 1986. Farr received these reports,
but did not read them in detail. Farr Dep. at 82.
Because of the correspondence from Indian Wells, Farr knew
that the investments were not doing well, and he felt a
continuing concern about the investments. Farr Dep. at 70-72.
He made no inquiry of Gerber or anyone else however, until he
received a letter from Beigel & Sandler, now his attorneys in
this action, which had been sent out to purchasers of Indian
Wells units, apparently informing them of the possibility of
joining in litigation against the sellers of the units. Farr
Dep. at 34-39, 70-73, 82-83. After receiving this letter, Farr
contacted Gerber for advice on whether to join the litigation.
Farr Dep. at 34-39. Farr requested from Gerber a copy of each
prospectus, which he never received. Farr Dep. at 58-59. This
action was filed on October 13, 1989.
The complaint sets out allegations that Gerber made certain
fraudulent statements and omissions to Mrs. Farr at the time of
her purchase of Indian Wells units. (See Cmpl't ¶ 24 at 6-7).
Defendant in this motion for summary judgment contends that
there is no factual basis for plaintiff's claim of
misrepresentation, pointing to the deposition testimony of Mr.
Farr (at 31, 47-54) which reveals that this complaint was filed
before he had read it, and that Farr has no real basis for
believing the specified statements were made. Plaintiff has
tacitly conceded the point, and instead now promotes his claim
as one for "unsuitability" — i.e. a claim that the Indian
Wells investments were unsuitable for Mrs. Farr's investment
needs, and that Gerber, knowing that they were unsuitable,
recommended them to her anyway. We will address this action as
one based on a claim of unsuitability.
A. Section 17(a)
Defendant contends that no private right of action should be
Section 17(a), 15 U.S.C. § 77q(a), and that plaintiff's second
claim should therefore be dismissed. Plaintiff relies upon
Kirshner v. United States, 603 F.2d 234 (2d Cir. 1978) in
contending the opposite. As we have previously held, we do not
believe that there is a private right of action under Section
17(a). Friedman v. Arizona World Nurseries, 730 F. Supp. 521,
545 (S.D.N.Y. 1990), aff'd, 927 F.2d 594 (2d Cir. 1991); Tobias
v. City National Bank and Trust Co., 709 F. Supp. 1266, 1274-76
(S.D.N.Y. 1989). We see no reason to change that view at this
time, and plaintiff's second claim is dismissed with prejudice.
B. Statute of Limitations
1. "One Year/Three Year" Rule
The Second Circuit has recently held that the uniform statute
of limitations applicable to actions brought under Section
10(b), 15 U.S.C. § 78j(b), and Rule 10b-5,
17 C.F.R. § 240.10b-5, is one year from the date of discovery of the claim,
but in no event more than three years from the date of accrual
(the "one year/three year" rule). Ceres Partners v. GEL
Associates, 918 F.2d 349 (2nd Cir. 1990). Under the Ceres rule,
plaintiff's Section 10(b) claim is clearly time-barred here.
That claim accrued no later than November 17, 1983 with respect
to the 1983 Fund, and October 19, 1984 with respect to the 1984
Fund, the dates on which Mrs. Farr purchased her limited
partnership units. This action was filed on October 13, 1989,
well over three years from both of those dates, and thus would
be time-barred under the one-year/three-year rule.
The Ceres court expressly declined, however, to address the
issue whether the rule should apply retroactively. 918 F.2d at
364. It is quite possible that the rule announced in Ceres
should not be applied retroactively in this action. The Ceres
decision overruled the "consisten[t]" holding of the Second
Circuit that the statute of limitations in Section 10(b) cases
"should be adopted by reference to the pertinent laws of the
forum state." 918 F.2d at 352-53. Where a decision applying a
new statute of limitations overrules a "clearly established
circuit precedent on which the complaining party was entitled
to rely," and where retroactive application of the new
limitations period would "be inconsistent with the purpose of
the underlying substantive statute, and . . . would be
manifestly inequitable," the new limitations period should not
be applied retroactively. Saint Francis College v. Al-Khazraji,
481 U.S. 604, 608-09, 107 S.Ct. 2022, 2025-26, 95 L.Ed.2d 582
(1987); see also, Chevron Oil Co. v. Huson, 404 U.S. 97,
105-109, 92 S.Ct. 349, 355-56, 30 L.Ed.2d 296 (1971); Welyczko
v. U.S. Air, Inc., 733 F.2d 239, 241 (2d Cir. 1984) (where
decision announcing new rule gives no indication whether new
rule should be applied retroactively, Chevron Oil analysis is
appropriate); In re Data Access Systems Securities Litigation,
843 F.2d 1537, 1552-53 (3d Cir. 1988) (en banc) (Seitz, J.
dissenting) (under Chevron Oil analysis, newly announced
federal limitations period for Section 10(b) actions should not
be applied retroactively); Finkel v. The Stratton Corp.,
754 F. Supp. 318 (S.D.N.Y. 1990) (declining to apply Ceres
retroactively to defendants who relied upon state limitations
We need not definitively resolve the retroactivity issue,
however,*fn4 because even under the pre-Ceres rule,
plaintiff's Section 10(b) claim is time-barred.
2. Application of Alaska Statute of Limitations
Under prior Second Circuit precedent, in a Section 10(b)
action, a federal court sitting in New York, applies New York's
statute of limitations provisions, including its borrowing
statute, N.Y.Civ.Prac.L. & R. § 202.*fn5 Ceres, 918 F.2d at
353. The Second Circuit
has construed this provision as meaning that in a
§ 10(b) action, the cause of action accrues "where
`its economic impact is felt, normally the
plaintiff's residence.'" . . . Thus, if a suit
brought in the "place" of the plaintiff's residence
would be time-barred, the suit in a New York
federal court is time-barred.
Id. (quoting Arneil v. Ramsey, 550 F.2d 774, 779 (2d Cir.
Defendant contends that the cause of action accrued in
Alaska, where Mrs. Farr lived from 1980 until her death in May
1985.*fn6 Because federal courts have exclusive jurisdiction
over claims under the 1934 Act, 15 U.S.C. § 78aa, plaintiff, if
he had sued in Alaska, would have had to bring his claims in
federal district court in Alaska, which would have been bound
by the Ninth Circuit's determination that the statute of
limitations of the forum state applied in Section 10(b)
actions. E.g., Nesbit v. McNeil, 896 F.2d 380, 384 (9th Cir.
1990). Thus, the federal district court in Alaska would have
applied the Alaskan state limitations period, and this Court,
applying New York's borrowing statute is required to do
likewise. Plaintiff agrees that the Alaskan limitations period
should apply. (Opp.Mem. at 18).*fn7
The applicable Alaskan limitations period for a section 10(b)
action is the two-year limitations period for "any injury to
the person or rights of another not arising on contract."
Alaska Stat. § 09.10.070; Robertson v. Seidman & Seidman,
609 F.2d 583, 586, 593 (2d Cir. 1979). Because this action was
filed on October 13, 1989, plaintiff's cause of action under
Section 10(b) is time-barred if it accrued later than October
While state law fixes the length of the
limitations period, federal law determines when
the period begins to run. Armstong v. McAlpin,
[699 F.2d 79, 87 (2d Cir. 1983)]; Arneil v. Ramsey,
[550 F.2d 774, 780 (2d Cir. 1977)]. The statute of
limitations for securities fraud begins to run
"when the plaintiff has actual knowledge of the
alleged fraud or knowledge of facts which in the
exercise of reasonable diligence should have led to
actual knowledge." Phillips v. Levie,
593 F.2d 459, 462 (2d Cir. 1979) (quoting Stull v. Bayard,
[561 F.2d 429, 432 (2d Cir. 1977)]). Thus, the
statute is not tolled for a plaintiff's "leisurely
discovery of the full details of the alleged
scheme." Klein v. Bower, 421 F.2d 338, 343 (2d Cir.
1970) (quoting Berry Petroleum Co. v. Adams & Peck,
518 F.2d 402, 410 (2d Cir. 1975)). Moreover,
plaintiffs bear the burden of proving diligence to
toll the statute. Freschi v. Grand Coal Venture,
767 F.2d 1041, 1047 (2d Cir. 1985), vacated on
other grounds, [478 U.S. 1015, 106 S.Ct. 3325, 92
L.Ed.2d 731] (1986).
Kronfeld v. Advest, Inc., 675 F. Supp. 1449, 1457-58 (D.Conn.